As Google shares burst through the US$400 mark, putting the search engine company's market valuation on a par with that of  IBM, early doubters such as analyst group Ovum are re-evaluating their early skepticism.

Google shares closed last week at just over US$400, valuing the company at about US$118 billion compared to IBM's valuation of US$137 billion. Google's revenues for 2005 are estimated at just over US$4 billion, compared with IBM's US$94 billion. However, as market pundits know, earnings - current and projected - are the key driver of valuations, rather than revenues. In just the first three quarters of 2005, Google has net earnings of US$1.093 billion on revenues of US$4.219 billion. This compares to earnings for the whole of 2004 of US$399.1 million on revenues of US$3.189 billion Clearly, Google is very much a high performance growth stock.

According to Ovum analyst, Richard Holway, analysts the world over are eating humble pie in the wake of Google's success. "We, like many other analysts, thought Google was overvalued at US$85, but note that the consensus analyst view now is that Google will continue its unrelenting rise in the months to come," he said, in a research note.

Holway the Google phenomenon has thrown open the desktop market and issued a serious challenge to Microsoft's dominance.

Holway said: "Putting the valuation to one side, there can be nobody who would question the effect that Google has had on our industry in its short existence. Indeed, I'd be the first to admit that Google has made the whole sector really exciting again. It has made the industry look carefully and urgently at the way it sells and delivers its products. It has made "software as a service" a serious concept - at last. It has brought into question who "owns" the desktop, or should we now more appropriately call it the "webtop"? It has made Microsoft aware of the threat (or opportunity) of the "executable Internet" to its established Microsoft Office revenue stream. It has made the concept of "free" software, services and even Internet access - paid for by Internet advertising - a reality.

"Indeed, it has issued the biggest wake-up call the industry has had in a long time. The next period will see more change than we have seen for a decade. Whether Google will be the ultimate winner or whether Microsoft, as it has done so many times before, will reinvent itself and dominates this new world or, indeed, whether some other player, such as IBM, will recognise and rise to the opportunity is a much more difficult question."

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